In the FY18 Transportation and Housing and Urban Development Appropriations Act offered by Congressman Mario Diaz-Balart (R-Fla.), guarantees for mortgages insured by the Federal Housing Administration (FHA) would no longer be backed if they were tied to a controversial energy efficiency loan program known as the Property Assessed Clean Energy (PACE) program. Americans for Tax Reform supports this language because residential PACE programs not only put taxpayers at risk but the program fast-tracks alternative energy mandates inherent in energy sources such as solar.

The language can be read here:

SEC. 236. None of the funds made available under this Act for new guarantees of mortgages insured under the Mutual Mortgage Insurance Fund may be used to guarantee or insure any mortgage on a property that is subject to a loan or other obligation, including those billed as taxes or assessments, for the purpose of financing any improvements under a Property Assessed Clean Energy or substantially similar program, if any portion of such loan or obligation is or has the potential to be in a lien position superior to the mortgage to be insured or guaranteed under the Mutual Mortgage Insurance Fund.

Residential PACE is a government-backed and managed loan program used by private property owners to finance energy efficiency or renewable energy upgrades. In the case of most residential programs, this involves a complicated financing scheme where municipalities create energy assessment districts and local governments issue bonds to loan providers. The loans can be issued by third parties, but are secured by a property tax lien and collected through municipal tax bills, attaching the loans to the property and not the person.

The first PACE program was implemented in Berkeley, California in an effort to address climate change by providing a no-cost up-front option for homeowners to make alternative energy upgrades to their property.

Senator Tom Cotton has called PACE “a scam,” and has offered federal legislation with Senator Marco Rubio (R-Fla.), and Senator John Boozman (R-Ark.) aimed at addressing some of the consumer protection concerns that have arisen as residential PACE loans have grown rapidly in recent years.

PACE loans can be used for a wide range of property upgrades, ranging from HVAC systems to solar panels.  As a federal mandate, PACE loans don’t currently require credit-checks and they make it easier for a property owners to qualify for high interest loans for energy systems that are highly subsidized by taxpayers nationally. Additionally, through solar “net metering” policies and other generous tax credits, many of the upgrades being financed by local governments are those that take advantage of crony capitalism in the energy market. PACE exacerbates the problems inherent in alternative energy systems.

To read ATR’s full primer on PACE financing in the United States, click here.

ATR supports Section 236 of this Act and urges Congress to adopt it for FY18.